When it comes to deciding between a fixed or variable interest rate mortgage, there is no right or wrong answer. Ultimately, your decision will depend on your unique needs and financial situation, in addition to anticipated interest rate changes and current market conditions.
To help you determine which rate is best for you, here’s what you need to know:
Fixed-Rate Mortgages
Fixed-rate mortgages tend to be the most popular choice among Canadians, thanks to their consistency. In fact, according to a recent report from Mortgage Professionals Canada, nearly 70% of recent borrowers chose a fixed-rate. In this scenario, the borrower signs on for a set interest rate, which remains the same for the selected term. Because the cost to borrow remains the same, homeowners can look forward to predictable monthly payments, immune to market volatility.
Who Should Apply for a Fixed-Rate Loan?
Fixed-rate mortgages are best suited for homeowners who:
Adhere to a budget and prefer the peace of mind an expected monthly payment allows
Would like to take advantage of low-interest rates now before they change
Can qualify for and secure a low interest rate for the lifetime of their mortgage loan
Variable Rate Mortgages
A variable-rate mortgage, on the other hand, is a loan in which the interest rate fluctuates over time in direct response to current market conditions (the Bank of Canada’s prime lending rate). Variable-rate loans tend to come with a lower interest rate than their fixed counterparts because they are higher risk. While this can amount to some serious savings for the borrower in a market where rates are steadily on the decline (historically, variable rate loans cost less in amortization), the opposite will occur when rates increase.
Who Should Apply for a Variable Rate Loan?
Variable-rate mortgages are best suited for homeowners who:
Are confident interest rates are on the decline
Are planning to refinance their mortgage in the short term
Are comfortable with fluctuating mortgage payments based on the prime rate
Which Should You Choose?
Here again, the right interest rate will depend on your current situation. For this reason, we recommend carefully weighing your options with the help of an expert Edmonton broker. Not only do they have a keen understanding of current market rates (now and the foreseeable future), but they’ll also be able to help you zero-in on the best mortgage product for your needs – potentially saving you thousands over the lifetime of your loan. For more information, fill out our quick and easy application form today.
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